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Today, the JSE launched the Rand Index (RAIN), a currency index which can be used by the asset management industry, economists as well as importers and exporters as a tracking and forecasting tool to determine the rand’s strength against a basket of currencies.
The Rand’s been under the spotlight in recent weeks due to its strength, with much debate around whether to intervene or not. The RAIN -- which tracks the movement of the Rand against the currencies of South Africa’s top 5 major international trading partners (the Euro, US Dollar, Chinese Yuan, UK Pound and Japanese Yen) -- provides a much-needed public benchmarking tool.
The representative weight of each currency in the Index will be calculated using audited import and export data of physical goods obtained from the South African Revenue Service, data which is currently only available two months in arrears.
“We believe the Index will be particularly useful to those users wanting to measure the competitiveness of South African goods in international import and export markets,” says Allan Thomson.
Much like the SAVI acts as a thermometer of the volatility in the equity market, a ‘fear gauge’ for perceived risk in this market, the RAIN gauges Rand volatility versus that of South Africa’s key trading partners’ currencies and so should prove a useful tool in determining whether the rand is under or over-valued.
Since its launch in June 2007, the SAVI has become a widely used tool among investors to predict levels of market anxiety. The SAVI is also the basis for variance futures, which allow investors to hedge against volatility in the market.
The JSE will list tradeable products based on the RAIN once market appetite/demand is present. As in the case of the SAVI, that could take place once investors become familiar with using the product.
Calculated daily by the JSE at 15h00 and 17h00, the RAIN will be distributed daily. A review of the inclusion of each of the five currencies and changes in individual currency weightings will take place annually at Index review. The JSE will then communicate any changes to currencies that make up the index or their weighting to the market.
